Opinion
No. 16 CV 0859 (NSR)
03-31-2017
ROBERT GIULIANO a/k/a ROBERT P. GIULIANO, Plaintiff, v. MACKIE BARCH, RICHARD A. WOLPOW, DANNY M. BARNES, STEPHEN M. PERRY, DAVID S. ROWLEY, BOYD R. RELAC, RUSSELL SKIBSTED, JUSTIN BARCH, and ERIC CLARKE, Defendants.
OPINION & ORDER
Robert Giuliano ("Giuliano" or "Plaintiff") is suing several corporate directors and officers of Pharmagen, Inc. ("Pharmagen"), in their individual capacity. Giuliano founded and solely owned Bryce Rx Laboratories ("Bryce Labs") until he sold it to Pharmagen in 2012 for $1,875 million. (Am. Compl. ¶ 1, ECF No. 29.) The sale was memorialized by a Stock Purchase Agreement, an Employment Agreement, and a Restrictive Covenant. (see generally Am. Compl., Exs. A-C, respectively.) Giuliano alleges, among other things, that defendants knew Pharmagen never intended to fulfill its obligations under the Agreements and engaged in fraud and misconduct to lure Giuliano into selling Bryce Labs. (Am. Compl. ¶¶ 60, 66-67, 79, 81.) The instant case involves the following defendants: Richard A. Wolpow ("Wolpow"), David S. Rowley ("Rowley"), Boyd R. Relac ("Relac"), Russell Skibsted ("Skibsted"), Mackie Barch ("M. Barch"), Justin Barch ("J. Barch"), and Eric Clarke ("Clarke") (together, the "Defendants").
A large public company previously known as Sunpeaks Ventures, Inc. ("Sunpeaks"). (Am. Compl. ¶ 1.)
Giuliano pleads causes of action that sound in contract (breach and anticipatory breach of contract), tort (tortious interferences, conversion), equity (pierce the corporate veil, unjust enrichment, promissory estoppel), and state employment law (non-payment of wages). All the defendants, except for Clarke, move to dismiss the Amended Complaint (the "Complaint") in its entirety pursuant to Rules 12(b)(2) and 12(b)(6) for lack of personal jurisdiction and failure to state a claim upon which relief can be granted. (see Defs.' Wolpow, Rowley, Relac, and Skibsted's Mem. Law Supp. Mot. to Dismiss Am. Compl. ("Wolpow Defs.' Mem.") 17-19, ECF No. 47); (Def. M. Barch's Mem. Law. Supp. Mot. to Dismiss. Am. Compl. ("Def. M. Barch's Mem."), ECF No. 59); (Def. J. Barch's Mem. Law. Supp. Mot. to Dismiss. Am. Compl. ("Def. J. Barch's Mem."), ECF No. 63.) Defendant Clarke moves to dismiss pursuant to Rule 8, Rule 9(b), and Rule 12(b)(6) of the Federal Rules of Civil Procedures. For the reasons explained below, the collective motion by Defendants Wolpow, Rowley, Relac, and Skibsted is GRANTED, Defendant M. Barch's motion is GRANTED, Defendant J. Barch's motion is GRANTED, and Defendant Eric Clarke's motion is GRANTED.
BACKGROUND
The following facts - taken from the Amended Complaint, exhibits attached thereto, statements or documents incorporated by reference, and documents that Plaintiff either possesses or knew about, and relied upon, in bringing suit - are assumed to be true for purposes of this motion. See, e.g., Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013); LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009); Kerman v. Kurz-Hastings, Inc., 175 F.3d 236, 240 (2d Cir. 1999).
A. Relevant Facts
Giuliano founded and individually operated Bryce Labs until December 13, 2012, when he sold it to Pharmagen for a "total purchase price" of $1,875,000. (Am. Compl. ¶¶ 1, 40.) On March 4, 2013, approximately three months after acquiring Bryce Labs, Pharmagen registered a name change from Bryce Labs to "Pharmagen Laboratories, Inc." ("Bryce Labs"). (Am. Compl. ¶ 31.) Bryce Labs was incorporated in New York and has its principal place of business in Connecticut. The purchase was memorialized in three separate documents: the Stock Purchase Agreement, the Employment Agreement, and Restrictive Covenant Agreement. (Am. Compl. ¶ 42, collectively referred to as "the Agreements.") Executed as separate documents, the Employment and Restrictive Covenant Agreements "were ancillary to, and a part of, the SPA in order to subsidize the monies to be paid to [Plaintiff] under the terms of the SPA." (Am. Compl. ¶ 42.) The Agreements were all signed on the same day, December 13, 2012, by Pharmagen (formerly known as Sunpeaks Ventures), Bryce Labs, and Giuliano. (Am. Compl. ¶¶ 40-41; Ex. A, Securities Purchase Agreement ("SPA"), at 1.)
To avoid confusion with the parent company, Pharmagen Inc., the subsidiary is referenced as Bryce Labs herein even though it has since changed its name.
Sunpeaks Ventures, Inc. a Nevada Corporation, was the original "Purchaser" listed on the Stock Purchase Agreement. Sunpeaks Ventures changed its name to Pharmagen, Inc. on January 15, 2013.
Pharmagen agreed to pay a total purchase price of $1,875,000, plus benefits. (Am. Compl. ¶ 77.) The parties apportioned the total purchase price for Bryce Labs between the Agreements. First, Pharmagen agreed to pay Giuliano a "sale price" of $1.1 million to acquire all of Bryce's outstanding securities. (SPA § 1.2.1.) Pursuant to the SPA, the "sale price" would be paid in four installments, with $100,000 due at closing, and the remaining $1 million in payments of $250,000. Under this scheme, Pharmagen would pay Giuliano a yearly sum of $250,000 over four years, starting on December 31, 2013 and continuing through December 31, 2016. (Am. Compl. ¶ 44; SPA §§1.2.1.1, 1.2.1.2.) The parties further agreed that the SPA "shall be governed by and construed in accordance with, the laws of the State of Maryland." (Am. Compl. ¶ 54; SPA § 7.11.)
Second, Pharmagen agreed to employ Giuliano for a period of four years, with the option to extend Giuliano's term for one additional year. The Employment Agreement, incorporated by reference in the SPA, explains that "the Board of Directors ... consider[ed] it to be in the best interests of [Pharmagen] that Giuliano remain ... and continue to devote his attention," to Bryce Labs given his "great deal of knowledge about [its] business affairs." (Am. Compl., Ex. B ("Emp't Agreement"), at 1.) Most relevant here, the Employment Agreement provided that Pharmagen would pay Giuliano a total of $775,000 in wages as part of the deal's "subsidized price." (Am. Compl. ¶ 45; Emp't Agreement §§ 1, 3.) Giuliano alleges that while the Employment Agreement was separately executed, it was "ancillary to, and a part of the, [SPA] in order to subsidize the monies to be paid to Giuliano under the terms of the [SPA]." (Am. Compl. ¶ 42.) The Employment Agreement also provided that if Pharmagen terminated Giuliano "without cause" "[Pharmagen] [was required to] continue pay[ing] [Guliano] his compensation" through "December 31, 2017." (Emp't Agreement § 6(c).) Like the SPA, the parties designated Maryland as the law governing the "validity, interpretation, construction, and performance" of the Employment Agreement. (Am. Compl. ¶ 55; Emp't Agreement § 10.) Finally, pursuant to the Restrictive Covenant Agreement Giuliano agreed to "... the covenants and promises made ... [here as] a material inducement to the Company to continue" employing Giuliano and providing him with "other benefits and consideration." (Id. § 15.)
The SPA states, in relevant part, "that following the consummation of the purchase and sale of the Shares contemplated by this Agreement, Purchaser will employ Seller" and "... in accordance with the terms of a written Employment Agreement executed by the parties at the Closing." (Am. Comp. ¶¶ 47-48; SPA §§ 4.1, 5.4.)
Plaintiff's factual allegations as to the individual defendants relate exclusively to their roles as directors or officers of Pharmagen, Inc. The majority of the Complaint asserts that Defendants committed fraud when they lured" Plaintiff into selling his company "knowing full well they had neither the means nor the intention of fulfilling their obligations under the terms of the Agreements." (¶¶ 79, 83, 100.) Additionally, Defendants allegedly undercapitalized Pharmagen, ignored corporate formalities, and dominated its affairs. Lastly, on April 22, 2013, Defendants fired Giuliano from Bryce Labs. (Am. Compl. ¶ 52.) Giuliano asserts that he "was wrongfully terminated, without cause," (id.) after "Defendant Officers blamed [Plaintiff] for errors made by another employee (pharmacist) when the other employee sent the wrong medications to a client." (Id. ¶ 92.) According to Plaintiff, this was a pretext to avoid paying him the monies due for acquiring Bryce Labs. (Id. ¶¶ 84, 96.)
B. Procedural Background
On December 11, 2015, Giuliano commenced this action in the Supreme Court of the State of New York, specifically Westchester County, but former defendants removed the case here by invoking the federal courts' diversity jurisdiction established by 28 U.S.C. § 1332. After a pre-motion conference on March 16, 2016, the Court granted Giuliano leave to file an amended complaint to address issues raised by Defendants, and granted Defendants leave to file separate motions to dismiss. Giuliano timely amended the initial complaint (ECF No. 29), after which Defendants Relac, Rowley, Wolpow, and Skibsted separately filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(2) and 12(b)(6). (See ECF Nos. 43, 46, 47.) Defendants M. Barch and J. Barch, each proceeding pro se, filed separate 12(b)(2) and (b)(6) motions to dismiss. (ECF Nos. 59, 63.) Defendant Clarke filed a motion dismiss pursuant to Rules 8, 9(b), and 12(b)(6). Fed. R. Civ. P. (ECF No. 51.)
On February 3, 2016, former defendants Danny M. Barnes and Stephen M. Perry filed a notice of removal with the U.S. District Court for the Southern District of New York (ECF No. 1.)
Defendants Relac, Rowley, Wolpow, and Skibsted filed separately from Clarke, M. Barch, and J. Barch.
At the same time, Giuliano filed a notice to voluntarily dismiss, without prejudice, any and all claims against co-defendants Danny M. Barnes ("Barnes") and Stephen M. Perry ("Perry"), pursuant to Fed. R. Civ. P. 41(a)(1)(A). Barnes and Perry - who were both named as defendants in the original complaint that was filed in state court - moved to remove the instant action to federal court. (See Notice of Partial Dismissal, ECF No. 27.)
Plaintiff's Amended Complaint, filed on April 9, 2016, alleges that up to, during, and after this sale, the named defendants perpetrated various frauds on Plaintiff. (see generally Am. Compl. ¶¶ 56-77.) Notably, neither Pharmagen nor Bryce Labs (a wholly owned subsidiary of Pharmagen) is a named party in the instant action. In filing suit against individual corporate defendants rather than Pharmagen itself, Giuliano is essentially asking the Court to pierce the corporate veil on an alter ego theory so that he may assert claims against (and potentially recover from) the individual directors and officers for (1) piercing the corporate veil due to fraud, (2) breach of contract, (3) tortious interference, (4) indemnification, (5) declaratory judgment and specific performance, (6) unjust enrichment, (7) promissory estoppel, (8) conversion, (9) attorneys' fees, (10) non-payment of wages, and (11) twice the amount of unpaid wages and attorneys' fees under Connecticut state law.
LEGAL STANDARD
"The lawful exercise of personal jurisdiction by a federal court requires satisfaction of three primary requirements." Jonas v. Estate of Leven, 116 F. Supp. 3d 314, 323-24 (S.D.N.Y. 2015) (citing Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 59 (2d Cir. 2012)). First, "the plaintiffs service of process upon the defendant must have been procedurally proper"; second, "there must be a statutory basis for personal jurisdiction that renders such service of process effective"; and third, "the exercise of personal jurisdiction must comport with constitutional due process principles." Licci ex re. Licci, 673 F.3d at 59-60.
The plaintiff bears the burden of establishing jurisdiction and must make a prima facie showing that jurisdiction exists. See Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34-35 (2d Cir. 2010). "Such a showing entails making legally sufficient allegations of jurisdiction, including an averment of facts that, if credited[,] would suffice to establish jurisdiction over the defendant." Id. at 35 (internal quotation marks omitted). The plaintiff must also "establish the court's jurisdiction with respect to each claim asserted." Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 24 (2d Cir. 2004).
"Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, see Fed. R. Civ. P. 11, legally sufficient allegations of jurisdiction." Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990); accord Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). In deciding a 12(b)(2) motion, the district court may consider materials outside the pleadings, including affidavits and other written materials. MacDermid, Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012); Bensusan Rest. Corp. v. King, 937 F.Supp. 295, 298 (S.D.N.Y. 1996), aff'd, 126 F.3d 25 (2d Cir. 1997). The court assumes the verity of the allegations "to the extent they are uncontroverted by the defendant's affidavits." MacDermid, Inc., 702 F.3d at 727 (internal quotation marks omitted). Nonetheless, all factual doubts or disputes are to be resolved in the plaintiff's favor. See, e.g., A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993).
Even where, as here, the Defendants have challenged the Plaintiff's factual allegations of jurisdiction, "the court may provisionally accept disputed factual allegations as true. In making such a ruling, the court need only determine whether the facts alleged by the plaintiff, if true, are sufficient to establish jurisdiction; no evidentiary hearing or factual determination is necessary for that purpose." Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 153 (2d Cir. 1999).
In diversity cases such as this, a district court looks to the law of the state in which it sits to determine whether it has personal jurisdiction over foreign defendants. See Int'l Shoe Co. v. State of Wash., Office of Unemp't Comp. & Placement, 326 U.S. 310 (1945); Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). This Court will therefore look to New York law to determine whether it may exercise personal jurisdiction over the Defendants.
Pursuant to N.Y. C.P.L.R. § 301, a defendant is subject to personal jurisdiction if he is domiciled in New York, served with process in New York, or continuously and systematically does business in New York. See Landoil Res. Corp. v. Alexander & Alexander Servs., Inc., 77 N.Y.2d 28, 33, 563 N.Y.S.2d 739, 565 N.E.2d 488 (1990); Pichardo v. Zayas, 122 A.D.3d 699, 702, 996 N.Y.S.2d 176, 180 (2d Dept. 2014); see also Wells Fargo Bank Minnesota, N.A. v. ComputerTraining.Com, Inc., No. 04-CV-0982, 2004 WL 1555110, at *2-3 (S.D.N.Y. July 9, 2004). In addition, a defendant may be subject to New York's long-arm statute, N.Y. C.P.L.R. § 302, if he engages in the following acts either in person or through an agent and such acts relate to an asserted claim: (1) transacts any business within the state or contracts anywhere to supply goods or services in the state; (2) commits a tortious act within the state; (3) commits a tortious act outside the state but injures a person or property in the state; or (4) owns, uses, or possesses any real property in the state. N.Y. C.P.L.R. § 302(a).
By contrast, a Rule 12(b)(6) motion challenges the sufficiency of the allegations in the complaint. See ATSI Commnc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). To service such a motion, a complaint must "state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). More specifically, the plaintiff must allege facts sufficient to show "more than a sheer possibility that a defendant acted unlawfully," id., and cannot rely on mere "labels or conclusions" to support a claim. Twombly, 550 U.S. at 555. If the plaintiff's pleadings "have not nudged [his or her] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Id. at 570.
DISCUSSION
Plaintiff alleges that Defendants, in their individual capacities, "committed fraud when they lured" Plaintiff into selling his company "knowing full well they had neither the means nor the intention of fulfilling their obligations under the terms of the Agreements." (Am. Compl. ¶ 79.) Specifically, Defendants misrepresented the company's intent to pay Plaintiff the total purchase price of $1.875 million and wrongfully terminated Plaintiff's employment at Bryce Labs to further avoid paying the total purchase price. Defendants also failed to assume operational debt or observe corporate formalities. As a result, Plaintiff alleges he "suffered compensable injury ... in the amount of at approximately at least ... $2.5 [million]." (Am. Compl. ¶ 64.)
Defendants seek to dismiss on several grounds pursuant to Rule 12(b). The Court considers the jurisdictional questions first, see Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (1999), finds that they dispose of each of the pending motions, and therefore does not reach the issue of whether the complaint sets forth valid claims for relief pursuant to Rule 12(b)(6). See Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 425 (2007) (stating that if "a court can readily determine that it lacks jurisdiction over the cause or the defendant, the proper course would be to dismiss on that ground."). "This is also prudent as the motions have different consequences for a litigant, for instance, the plaintiff's ability to re-file a claim." Bidonthecity.com LLC v. Halverston Holdings Ltd., No. 12-CV- 9258 (ALC) (MHD), 2014 WL 1331046, at *2 (citing Arrowsmith v. United Press Int'l, 320 F.2d 219, 221 ("A dismissal for lack of jurisdiction or improper venue does not preclude a subsequent action in an appropriate forum, whereas a dismissal for failure to state a claim upon which relief can be granted is with prejudice.")).
See also Bidonthecity.com LLC v. Halverston Holdings Ltd., No. 12-CV- 9258 (ALC) (MHD), 2014 WL 1331046, at *2 (S.D.N.Y. Mar. 31, 2014) (citing Arrowsmith v. United Press Int'l, 320 F.2d 219, 221 (2d Cir. 1963) ("Not only does logic compel initial consideration of the issue of jurisdiction over the defendant - a court without such jurisdiction lacks power to dismiss a complaint for failure to state a claim - but the functional difference that flows from the ground selected for dismissal likewise compels considering jurisdiction and venue questions first.")).
A. The Amended Complaint Fails to Allege Facts Sufficient for the Court's Exercise of Personal Jurisdiction over Defendants Wolpow, Rowley, Relac and Skibsted
In moving to dismiss, Defendants dedicate one paragraph to this jurisdictional issue. They argue that "Plaintiff has not pled facts sufficient to establish this Court's jurisdiction over the Defendants." (Wolpow Defs.' Mem. at 17, ECF No. 47.) Because Defendants do not substantiate their claim, presumably they argue that (1) they are foreign individuals who have not conducted any business in New York, and (2) Plaintiff's commencement of a lawsuit in New York, effectively availing himself of the protections of New York state and its laws, does not confer personal jurisdiction because the Complaint fails to allege that Pharmagen was the agent or alter ego of Defendants. In opposition, Plaintiff puts forth a theory of jurisdiction by proxy, namely, that personal jurisdiction exists pursuant to N.Y. C.P.L.R. § 302 because Plaintiff negotiated the contracts from New York and Defendants caused economic injury to Plaintiff in New York. Although it is unclear based on Plaintiff's generalized allegations, it appears Plaintiff contends personal jurisdiction exists pursuant to N.Y. C.P.L.R. §§ 302(a)(1) and 302(a)(3).
New York's long-arm statute, N.Y. C.P.L.R. 302(a), sets out four paths to personal jurisdiction. Because there is no factual assertions or allegations that Defendants either own real property in New York, see id. 302(a)(4), or committed any tortious act within New York state, , see id. 302(a)(2), Plaintiff must establish either (1) that defendants transacted "business within" New York or have contracted "anywhere to supply goods or services in" New York, see id. 302(a)(1); or (2) that Defendants have committed a "tortious act ... causing injury to person or property within the state" and that a defendant either:
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in [New York], orid. 302(a)(3)(i)-(ii).
(ii) expects or should reasonably expect the act to have consequences in [New York] and derives substantial revenue from interstate or international commerce[,]
Plaintiff does not argue that the Court has general jurisdiction over Defendants under N.Y. C.P.L.R. § 301 (see Pl.'s Opp'n to Wolpow at 23, ECF. No. 49), and has therefore waived that argument. Because Defendants move to dismiss on the basis of 12(b)(2) generally, the Court nevertheless conducts a Section 301 jurisdictional analysis.
Defendants Wolpow, Rowley, Relac, and Skibsted are not subject to general personal jurisdiction pursuant to N.Y. C.P.L.R. § 301. They are all foreign individuals that do not systematically and continuously do business in New York, and Plaintiff does not argue otherwise. Further, individuals acting on a corporation's behalf are not subject to general personal jurisdiction under Section 301.
A federal court sitting in diversity has general personal jurisdiction over a party pursuant to CPLR § 301 where the defendant "engaged in such a continuous and systematic course of 'doing business' in New York as to warrant a finding of its 'presence' in the state." Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d Cir. 1998) (internal quotation marks and citation omitted). In evaluating whether a defendant is "doing business" in New York, courts look to a nonexclusive number of factors, none of which is conclusive, including: (1) "the existence of an office in New York"; (2) "the solicitation of business in the state"; (3) "the presence of bank accounts and other property in the state"; and (4) "the presence of employees of the foreign defendant in the state." Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 58 (2d Cir. 1985). Section 301 has been construed to confer jurisdiction over non-corporate entities, such as charities or nonprofit organizations and individuals, under the "doing business" test. See Thorsen v. Sons of Norway, 996 F. Supp. 2d 143, 153 (E.D.N.Y. 2014) (internal citations omitted).
Here, Plaintiff alleges that Defendants Wolpow, Rowley, Relac, and Skibsted - in their capacities as directors and officers of Pharmagen - breached their obligations pursuant to the Agreements. Plaintiff specifically states:
"that the Agreements were negotiated and entered into in New York, that Pharmagen Labs is a New York Corporation, and as a result, Pharmagen and Pharmagen Labs transacted sufficient business within the State of New York to subject them to long-arm jurisdiction pursuant to N.Y. C.P.L.R. § 302. The Plaintiff has further alleged that the Moving Defendants exercised control over the New York Defendant (Pharmagen Labs), which in actuality was merely a subsidiary and operating unit and not a separate corporate entity from Pharmagen."(Pl.'s Opp'n to Wolpow at 23, ECF No. 49.) (internal citations omitted). Under Plaintiff's theory of jurisdiction by proxy, the Court has personal jurisdiction over the Defendants by virtue of its long-arm jurisdiction over Pharmagen and Pharmagen Labs. (Id.)
As an initial matter, Plaintiff incorrectly refers to Pharmagen Labs as "the New York Defendant," because he has not named the subsidiary (nor its parent) as a party to this action. Moreover, jurisdiction over the representatives of a corporation "may not be predicated on jurisdiction over the corporation itself, and jurisdiction over the individual officers and directors must be based on their individual contacts with the forum state." Charas v. Sand Tech. Sys. Int'l Inc., No. 90-CV-5638 (JFK), 1992 WL 296406. At *4 (S.D.N.Y. Oct. 7, 1992); see also Duravest, 581 F. Supp. 2d at 634 (citing Arch Specialty Ins. Co. v. Entm't Specialty Ins. Servs., 2005 WL 696897 (S.D.N.Y. Mar. 24, 2005) (citing Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 470, 527 N.Y.S.2d 195, 522 N.E.2d 40 (1988) ("[I]t does not follow automatically that New York may exercise personal jurisdiction over all of a corporation's officers as a consequence of having jurisdiction over the corporation.")). Indeed, an individual acting on a corporation's behalf is not subject to general personal jurisdiction under Section 301. See Duravest, 581 F. Supp. 2d at 635 ("Rather, an individual defendant may be subject to specific personal jurisdiction (but not general jurisdiction) based on his actions in his corporate capacity ....") (emphasis added); Big Apple Pyrotechnics and Multimedia Inc. v. Sparktacular Inc., 2007 WL 747807, at *6 (S.D.N.Y. Mar. 9, 2007) (quoting Laufer, 55 N.Y.2d at 313, 449 N.Y.S.2d 456, 434 N.E.2d 692) ("Although a corporation can act only through an employee or agent, the employee or agent being a live rather than a fictional being can act on behalf of himself or his employer or principal. He does not subject himself, individually, to the CPLR 301 jurisdiction of our courts, however, unless he is doing business in our State individually."). Plaintiff has failed to allege any facts to suggest that Defendants systematically and continuously do business in New York. Therefore, Defendants are not subject to general personal jurisdiction pursuant to Section 301.
However, the Defendants' contrary argument that under no circumstances can the actions of a corporation be imputed to an officer is likewise incorrect, at least with respect to specific jurisdiction. See Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 527 N.Y.S.2d 195, 522 N.E.2d 40 (1988); see also Big Apple Pyrotechnics & Multimedia, Inc. v. Sparktacular, Inc., 2007 WL 747807 (S.D.N.Y. Mar. 9, 2007) (confirming that "a corporate officer cannot be subject to general jurisdiction under CPLR § 301 for his New York activities on behalf of a corporation" but that he can be subject to specific jurisdiction under § 302).
"There is some confusion among district courts as to whether Section 301 confers personal jurisdiction over individual in addition to corporations." Thorsen v. Sons of Norway, 996 F. Supp. 2d 143, 154 n. 5 (E.D.N.Y. 2014) (citing to Torres v. Monteli Travel, Inc., 2011 WL 2670259, at *5 n. 3) (assuming, without deciding, that individuals could be subject to personal jurisdiction under Section 301). "Nevertheless, the New York Court of Appeals spoke clearly on the issue in Laufer, and the Court follows that court's decision." Thorsen, 996 at 154 n. 5. This Court follows Laufer and adopts Thorsen in the instant case.
Notably, throughout the Complaint Plaintiff simultaneously alleges that Defendants were acting in both an individual and corporate capacity. (Compare Am. Compl. ¶ 68 ("Defendant Officers used Non-Party Pharmagen in their personal capacities for personal ends, acting without regard to corporate formalities and for their immediate convenience") with ¶ 60 (Defendant Officers directed Non-Party Pharmagen in a concerted effort to evade their contractual obligations to [Plaintiff] under the Agreements.") The Court based its general jurisdiction analysis on Plaintiff's opposition (specifically Pl.'s Opp'n to Wolpow at 21-23), where he most directly argues jurisdiction. There, Plaintiff does not allege that the Defendants were acting in their personal capacities, nor does he allege any facts to support such a claim.
2. N.Y. C.P.L.R. § 302(a)(1) - transaction of business within the state
Turning to specific personal jurisdiction pursuant to N.Y. C.P.L.R. § 302(a)(1), Plaintiff's allegations fail to establish that any of the defendants transacted business in New York within the meaning of the statute.
Plaintiff alleges he "has fully performed his duties and obligations under the Agreements" (¶ 80), which Defendants have breached when they (1) failed to assume credit line; (2) failed to make scheduled payments for the sale price ($750,000 still outstanding); (3) anticipatorily repudiated making final scheduled payment of $250,000; (4) failed to make payments for the 'total purchase price'; (5) wrongfully terminated Plaintiff; and (6) failed to reimburse Plaintiff for expenses paid during his employment. (Am. Compl. ¶ 70.)
"Whether a non-domiciliary is transacting business within the meaning of CPLR 302(a)(1) is a fact based determination, and requires a finding that the non-domiciliary's activities were purposeful and established 'a substantial relationship between the transaction and the claim asserted.'" Paterno v. Laser Spine Inst., 24 N.Y.3d 370, 376, 998 N.Y.S.2d 720, 23 N.E.3d 988 (2014). "Purposeful activities are volitional acts by which the non-domiciliary 'avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'" Id. (quoting Fischbarg v. Doucet, 9 N.Y.3d 375, 380, 849 N.Y.S.2d 501, 880 N.E.2d 22 (2007)). "More than limited contacts are required for purposeful activities sufficient to establish that the non-domiciliary transacted business in New York." Paterno, 24 N.Y.3d at 376, 998 N.Y.S.2d 720. New York case law makes clear that "it is the quality of the defendants' New York contacts that is the primary consideration" in a 302(a)(1) analysis. Fischbarg, 9 N.Y.3d at 380, 849 N.Y.S.2d 501, 880 N.E.2d 22; see also Royalty Network Inc. v. Dishant.com, LLC, 638 F. Supp. 2d 410, 417-18 (S.D.N.Y. 2009).
The U.S. Court of Appeals for the Second Circuit has also delineated four factors that guide the section 302(a)(1) inquiry:
(i) whether the defendant has an on-going contractual relationship with a New York corporation; (ii) whether the contract was negotiated or executed in New York and whether, after executing a contract with a New York business, the defendant has visited New York for the purpose of meeting with parties to the contract regarding the relationship; (iii) what the choice-of-law clause is in any such contract; and (iv) whether the contract requires ... payments into the forum state or subjects [defendants] to supervision ... in the forum state.Sunward Elecs., Inc., 362 F.3d at 22. The "pivotal inquiry" is whether the defendant has "performed purposeful acts in New York in relation to the contract." Bonsey v. Kates, 13-CV-2708, 2013 WL 4494678, at *4 (S.D.N.Y. Aug. 21, 2013) (internal quotation marks omitted).
Relying only on Soviet Pan Am Travel Effort v. Travel Committee, Inc., Plaintiff argues that personal jurisdiction over individual defendants may be based on the actions of original corporate defendant and not their own individual actions. 756 F.Supp. 126 (1991). Plaintiff's counsel states: "Not only is Soviet instructive as to the burdens of the parties in connection with jurisdiction, the actual jurisdictional facts in Soviet could not be more analogous to those in the instant action." (Pl.'s Opp'n to Wolpow at 22.) Not so. First, unlike the instant case, plaintiff in Soviet sued both the individual defendants and the corporations. Second, Soviet predates Seward and thus, Plaintiff's memoranda fails to account for key guidance in our Circuit.
As a starting place, it is helpful to review some of the key facts in support of Plaintiff's claims against Defendants Wolpow, Relac, Rowley, and Skibsted. In 2012, these four defendants (along with M. Barch, J. Barch, and Clarke) "exercised complete domination and control of [Pharmagen] with respect to [] Pharmagen Companies' negotiation and performance under the Agreements ... from on or about October 2012 through the present time." (Am. Compl. ¶ 58.)
According to the Complaint, Defendants "made deliberate false representations to [Plaintiff] when they negotiated and entered into the Agreements ...." (Am. Compl. ¶ 59.) Moreover, Defendants "lured" Plaintiff into selling his company "knowing full well they had neither the means nor the intention of fulfilling their obligations under the terms of the Agreements" (Am. Compl. ¶ 79). To corroborate this claim, Plaintiff cites to a $2 million cash infusion Defendants obtained for Bryce Labs at or about the same time it executed the Agreements. (Am. Compl. ¶ 61.) Plaintiff alleges this capital infusion proves that Defendants could never intend to fulfill Pharmagen's obligations under the Agreements (Am. Compl. ¶¶ 61-68). In sum, Defendants' "deliberate misrepresentations" formed the basis of Plaintiff's decision "to consummate the transaction." (Am. Compl. ¶¶ 63, 66.) Lastly, Plaintiff claims that Defendants Wolpow, Relac, Rowley, and Skibsted knew about and failed to prevent corporate officers from improperly spending corporate funds between July 2013 and July 2014. (Am. Compl. ¶¶ 71, 69, 70, 72, respectively.)
Courts in New York have declined finding against defendants for misrepresenting need for additional cash infusion where plaintiffs failed to indicate that defendants made any contrary statements. See, e.g., Jang v. Cho, 9 Misc. 3d 1130(A), 862 N.Y.S.2d 808 (Sup. Ct. 2005) (dismissing fraud claim where plaintiff made no "allegations indicating that [defendant] made any statements upon which plaintiff relied, separate from the Agreement itself."; see also Am. Tissue Ins. v. Donaldson, 351 F. Supp. 2d 79, 93 (S.D.N.Y. 2004) (finding that "the equity infusion ... benefitted [the company]; it gained $25 million in equity. Under no theory can that be characterized as an injury").
This factual recitation reveals the substantial lack of allegations linking Defendants to New York. Addressing the Seward factors in turn, Plaintiff first fails to allege even a single fact in support of any defendant's involvement in the transaction, save for a bare allegation that they held board positions. There are no specific allegations that these individual defendants transacted business in the state aside from the naked, conclusory, and formulaic allegations that they undercapitalized Pharmagen, ignored corporate formalities, and dominated its affairs. (See generally Am. Compl. ¶¶ 61-77.) In fact, Plaintiff asserts all these allegations against the "defendants" generally, without specifying the role of Wolpow, Rowley, Relac or Skibsted in abusing the corporate form to perpetuate a fraud. See Karabu Corp. v. Gitner, 16 F. Supp. 2d 319, 324 (S.D.N.Y. 1998); cf. De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir. 1996) (affirming the dismissal of claims against an alleged alter ego where the plaintiffs' allegations were conclusory and "devoid of any specific facts" that defendants acted to defraud plaintiffs); Strojmaterialintorg v. Russian Am. Commercial Corp., 815 F. Supp. 103, 104-05 (E.D.N.Y. 1993). Instead, as Defendants argue, Plaintiff proffers "non-specific allegations without any distinction among the individual defendants with respect to transactions of which Plaintiff complains of ...." (Wolpow Defs.' Reply at 2.)
Plaintiff's allegation that Relac once in June 2014 "[a]dmitted know[ing]" that the Agreements were improperly negotiated and executed, when he was allegedly working on behalf of Pharmagen, or that Plaintiff "had a strong case against" the "individual officers," are insufficient to establish Relac "transacted business" in New York. (Am. Compl. ¶ 69.)
Second, the record contains no factual allegations showing that any of the Defendants visited New York for the purpose of negotiating and executing the contract. The only allegations tying the causes of actions to New York is that the agreements were negotiated and executed by Defendants in New York. (Pl's Opp'n to Wolpow at 22.) Yet there are no allegations in the Complaint that the foreign defendants traveled to New York at any time whatsoever for purposes of engaging in any business transaction connected to the Agreements. Presumably, Plaintiff has personal knowledge of these facts, such as where the meetings were held, if documents were mailed or electronically transmitted, or if any of the Defendants visited New York for subsequent meetings regarding the contractual relationship. Even if the Court were to assume - without any allegation to support it - that Defendants were projecting themselves into New York when they negotiated and executed the contracts, how they did so is relevant for a personal jurisdiction analysis. The form of the contact is relevant given that courts are "generally loath to uphold jurisdiction under the transaction in New York prong of CPLR 302(a)(1) if the contract at issue was negotiated solely by mail, telephone, and fax without any New York presence by the defendant." Mortg. Funding Corp., 370 F. Supp. 2d at 287 (emphasis added).
The Court notes that the Complaint does not allege that "Defendants negotiated the Agreements in New York." In fact, none of the allegations state where the misconduct occurred. Plaintiff asserts this fact, for the first time, in his opposition memorandum to Defendant's Wolpow, Rowley, Relac, and Skibsted's motion to dismiss. (ECF No. 47.)
See also Int'l Customs Assocs., Inc. v. Ford Motor Co., 893 F.Supp. 1251, 1261-62 (S.D.N.Y. 1995) ("Telephone calls and correspondence sent into New York, by a non-domiciliary defendant who is outside New York, generally are insufficient to establish personal jurisdiction." (collecting cases)), aff'd, 201 F.3d 431 (2d Cir. 1999); Metals Alliance Corp. v. Beshay, No. 97-CV-3401, 1998 WL 811788, at *2 (S.D.N.Y. Nov. 19, 1998) ("[O]nly in cases where the telephone call or communication clearly shows that the defendant intends to project itself into ongoing New York commerce, such as where a defendant directly conducts market activity or securities transactions in New York over the telephone, do New York courts sustain jurisdiction based on telephone calls or facsimile transmissions alone." (internal quotation marks omitted)); see also Kimco Exch. Place Corp. v. Thomas Benz, Inc., 34 A.D.3d 433, 434, 824 N.Y.S.2d 353, 354 (2d Dept. 2006) ("The defendants' acts of faxing the executed contracts to New York and of making a few telephone calls do not qualify as purposeful acts constituting the transacting of business.").
Third, the Agreements are governed by Maryland law, (Am. Compl. ¶¶ 54-55), a fact Plaintiff never addresses for purpose of personal jurisdiction. See Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 23 (2d Cir. 2004) (explaining choice of law clause is a significant factor in a personal jurisdiction analysis because the parties, by so choosing, invoke the benefits and protections of that state's law). Fourth, there are no allegations that money ever flowed to New York nor allegations to substantiate Plaintiff's contention that the Agreements were to be effectuated in New York. Thus, the allegations fail to satisfy any of the Seward factors.
Plaintiff's contention that the Court has personal jurisdiction because Plaintiff performed his obligations under the Agreements in New York is also unavailing. Jonas v. Estate of Leven, 116 F. Supp. 3d 314, 327 (S.D.N.Y. 2015) (finding no personal jurisdiction where "[Plaintiff] built out an office in New York, hired personnel, and performed trades and analyses [in New York] is also unavailing."). Notwithstanding the fact that there are no specific, but merely general, allegations about Plaintiff's work in New York in the Complaint, his unilateral activity in the proposed forum state would be insufficient to establish jurisdiction. See Int'l Customs, 893 F. Supp. at 1262 ("The appropriate focus of an inquiry under C.P.L.R. § 302(a)(1) is on what the non-domiciliary defendant did in New York and not on what the plaintiffs did.") New York courts have consistently held that the unilateral acts of plaintiffs in the forum state do not support jurisdiction over a non-domiciliary defendant. See, e.g., Ferrante Equip. Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280, 285, 309 N.Y.S.2d 913, 258 N.E.2d 202 (1970); SunLight Gen. Capital LLC v. CJS Invs. Inc., 114 A.D.3d 521, 522, 981 N.Y.S.2d 390, 391 (1st Dept. 2014); Mortg. Funding Corp. v. Boyer Lake Pointe, LC, 379 F. Supp. 2d 282, 287-88 (E.D.N.Y. 2005) ("Even though the Plaintiff may have expended time, energy and resources in New York ... carrying out [its] obligations under the alleged contract, the Plaintiff's business interactions with New York are not at issue when assessing personal jurisdiction. Rather, the Court must evaluate the Defendants' activities and conduct" in New York.).
In fact, Plaintiff asserts, and Defendants do not contest, that Plaintiff effectuated his employment agreement in Connecticut, where Bryce Labs in located. (Am. Compl. ¶ 30.)
Similarly, New York law is clear that, for purposes of C.P.L.R. 302(a)(1), "the residence or domicile of the injured party within a State is not a sufficient predicate for jurisdiction." Fantis Foods, Inc. v. Standard Importing Co., 49 N.Y.2d 317, 326 (1980). As a result, personal jurisdiction lies "only where a defendant's direct and personal involvement on [its] own initiative projected [itself] into New York to engage in a sustained and substantial transaction of business." Aquiline Capital Partners LLC v. FinArch LLC, 861 F. Supp. 2d 378, 386 (S.D.N.Y. 2012) (internal quotation marks and alterations omitted). Because Plaintiff's allegations, when considered separately from the fact that Plaintiff resides in New York, fails to establish that any of the defendants' transacted business in New York in a "sustained" or "substantial" manner, this Court finds that the first prong of C.P.L.R. 302(a) is not satisfied. See, e.g., See DirectTV Latin Am., LLC v. Park 610, LLC, 691 F.Supp.2d 405, 423 (S.D.N.Y. 2010) (noting that cases in which the transaction of business in New York is supported by a single transfer of funds to a New York bank account "almost always" involve "far more" additional contacts with the state).
The contacts alleged between Defendants and New York - if they can be said to exist at all - are too tenuous. Accordingly, the Court finds that Plaintiff has not made a prima facie showing of personal jurisdiction over the individual Defendants pursuant to N.Y. C.P.L.R. § 302(a)(1), see CutCo Industries, 806 F.2d at 364, and grants Defendants' motion to dismiss for lack of personal jurisdiction.
3. N.Y. C.P.L.R. § 302(a)(3) - commission of a tortious act outside the state causing injury within the state
In order to establish personal jurisdiction over a non-domiciliary such as Defendants under C.P.L.R. 302(a)(3), Plaintiff must show that defendants committed a tortious act causing injury to him in New York. This limitation is "more stringent than any constitutional requirement," Ingraham v. Carroll, 90 N.Y.2d 592, 597, 665 N.Y.S.2d 10, 687 N.E.2d 1293 (1997) and requires a showing of contacts somewhere between the large quantity required for general jurisdiction under N.Y. C.P.L.R. 301 and the "one shot" single business transaction that can satisfy Section 302(a)(1). Id.
Defendants argue Plaintiff has failed to allege facts sufficient for jurisdiction because "the only allegation related to New York's jurisdiction is that the contracts at issue were negotiated in New York." (Wolpow Defs.' Mem. at 17.) In Defendants' view, Plaintiff has only alleged claims that sound in contract, rather than tort. This argument is unavailing: so long as the allegations, taken as a whole, constitute the elements of a tort, the "tortious act" element of C.P.L.R. 302(a)(3) is satisfied. See Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 898-99 (2d Cir. 1980).
Nevertheless, Plaintiff fails to plainly or directly state that New York is the situs of the tort. While Plaintiff, for example, states that Defendants fraudulently induced the sale, (see Am. Compl. ¶¶ 59-63), the Complaint does not name New York as the site of the fraudulent inducement. Plaintiff did not attest to this fact in a sworn affidavit either. Therefore, Plaintiff has also failed to establish a prima facie case for personal jurisdiction under Section 302(a)(3). New York courts apply a situs-of-injury test, rather than an economic-effect test, to determine the location of injury under § 302(a)(3). Pathak v. Molopo Energy Ltd., No. 13-CV- 2812 (JMF), 2013 WL 5477594, at *5 (S.D.N.Y. Oct. 2, 2013) (citing Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 209 (2d Cir. 2001)). In this case, then, it is unclear whether Plaintiff's allegations sounding in tort (e.g., fraudulent inducement, conversion, unjust enrichment) relate to acts taken inside or outside of New York.
Plaintiff alleges that he "suffered compensable injury as a result of the deliberate misrepresentations made by Defendant Officers, in the amount of approximately at least Two and One-Half Million Dollars ($2,500,000.00)." (Am. Compl. ¶ 64) (sic.).
Even assuming the tortious conduct was related to conduct within New York - an inference in Plaintiff's favor - courts in this district routinely hold that a breach of contract claim does not constitute a tortious act and may not form the basis of long-arm jurisdiction pursuant to section 302(a)(3). See, e.g., Amigo Foods Corp. v. Marine Midland Bank-New York, 39 N.Y.2d 391, 396, 384 N.Y.S.2d 124, 348 N.E.2d 581 (1976); Pramer S.C.A v. Abaplus Int'l Corp., 76 A.D.3d 89, 97, 907 N.Y.S.2d 154, 159 (1st Dept. 2010); see also PI, Inc. v. Quality Prods., Inc., 907 F.Supp. 752, 760 (S.D.N.Y. 1995) ("To satisfy New York's long arm statute, the complaint must 'adequately frame a cause of action in tort arising from [the alleged tortious acts].'") Plaintiff's causes of action are all premised on Defendants' breach of the Agreements. Generally, a cause of action sounding in fraud is not viable when the only fraud charged relates to a breach of contract. Trusthouse Forte (Garden City) Management, Inc. v. Garden City Hotel Inc., 483 N.Y.S.2d 216, 218 (N.Y. App. Div. 1984.) When a party is in essence seeking the enforcement of a contractual bargain, the claim is to be premised upon a breach of contract theory rather than a tort claim. Sommer v. Federal Signal, 583 N.Y.S.2d 957, 961 (N.Y. 1992); see also, Chateuagay Corp. v. Frito-Lay, Inc., 10 F.3d 944, 958 (2d Cir. 1993) (citations omitted).
Notwithstanding the parties contractual relationship, a claim for fraud may still be maintained where plaintiff can either "(i) demonstrate a legal duty separate from the duty to perform under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) seek special damages that are caused by the misrepresentation and unrecoverable as contract damages." Bridgestone/Firestone, Inc. v. Recovery Credit Services, Inc., 98 F.3d 13, 20 (2d Cir. 1996) (citations omitted). The Court notes, that as currently alleged, the Complaint fails to reveal that movants owed a legal duty to Plaintiff outside of their contractual responsibilities.
Nonetheless, Plaintiff contends that he has alleged a tort because he included the word "fraud" in a handful of allegations and alleges that defendants intended to "commit fraud" by depriving Plaintiff of the money owed to him pursuant to the Agreements. (Am. Compl. ¶ 79.) But "[b]y merely alleging a tortious act, a plaintiff may not convert a simple breach of contract case into a tort for jurisdictional purposes." Kulas v. Adachi, No. 96-CV-6674, 1997 WL 256957, at *8 (S.D.N.Y. May 16, 1997); see, e.g., Amigo Foods Corp., 39 N.Y.2d at 396, 384 N.Y.S.2d 124, 348 N.E.2d 581. Rather, Plaintiff must "aver facts that if credited, would suffice to establish all the requirements under one of § 302(a)'s subsections, including the commission of a tort," here, fraud. Bank Brussels Lambert, 171 F.3d at 785. Plaintiff's allegations of fraud - including his allegations that defendants made fraudulent statements to deprive Plaintiff of the subsidized sale price (Am. Compl. ¶44) and a salary (id. ¶ 45) - are wholly conclusory and fail to identify a legal duty separate from the contractual duty to pay monies owed, including a salary. See Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389-90, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987); Skrodzki v. Marcello, 810 F. Supp. 2d 501, 521 (E.D.N.Y. 2011); Kulas, 1997 WL 256957, at *9 ("[W]here a fraud claim arises out of the same facts as plaintiff's breach of contract claim, with the addition only of an allegation that defendant never intended to perform the precise promises spelled out in the contract between the parties, the fraud claim is redundant and plaintiff's sole remedy is for breach of contract." (internal quotation marks omitted)).
The Complaint is bereft of any factual allegation related to Defendants' purported misstatements to induce Plaintiff to sell Bryce Labs to Pharmagen, Inc. In fact, there is not a single allegation as to who made the statements or profited from these strategies.
Moreover, in cases involving corporate officers, personal jurisdiction over the corporation for a tortious act does not necessarily grant jurisdiction over its employees; in order to show jurisdiction over an out-of-state officer for a corporation's actions, a plaintiff must show that the officer is a "primary actor[ ] in the transaction in New York" and not merely "some corporate employee ... who played no part" in the allegedly tortious act. Retail Software Servs., Inc. v. Lashlee, 854 F.2d 18, 22 (2d Cir. 1988); see also Vista Food Exch., Inc. v. Champion Foodservice, LLC, 124 F. Supp. 3d 301, 307-08 (S.D.N.Y. 2015), appeal dismissed sub nom. VISTA FOOD EXCHANGE INC. v. CHAMPION FOODSERVICE LLC (Sept. 21, 2015).
Plaintiff states that Defendants "exercised complete domination and control of [Pharmagen] with respect to [the company's] performance under the Agreements." (Am. Compl. ¶ 68.) These allegations are conclusory or made on information and belief (Am. Compl. ¶¶ 57-68), and do not establish that Wolpow, Rowley, Relac or Skibsted exercised sufficient control over the breaches at issue to be considered a primary actor. See Vista Food, 2014 WL 3857053, at *6-7; see also Sterling Interiors Group, Inc. v. Haworth, No. 94-CV-9216, 1996 WL 426379, at *15 (S.D.N.Y. July 30, 1996).
Under these facts, the exercise of personal jurisdiction over Defendants Wolpow, Rowley, Relac, and Skibsted under CPLR § 302 is not supported. The Court therefore grants the motion to dismiss collectively submitted by Defendants Wolpow, Rowley, Relac, and Skibsted.
The Court reiterates that Defendants' status as directors in itself, even if they "participated" - whatever that might mean - in the drafting and negotiating of the SPA is insufficient to establish jurisdiction. In re Alstom SA, 406 F. Supp. 2d at 399 (defendant's "status as a Board member in itself, even if he in some respect oversaw [corporation's] execution of the [ ] contract, is too tenuous a connection to plausibly claim that this status alone directly and foreseeably gave rise to the effects complained of by the Plaintiffs" insufficient as a matter of law for personal jurisdiction). Moreover, failures in their corporate capacity do not give rise personal jurisdiction over directors where none otherwise lies. DaimlerChrysler AG Securities Litigation, 247 F. Supp. 2d 579, 587 (D. Del. 2003) ("[W]here a board member's only contact with the forum has been in the scope of his corporate capacity, the individual's contact is insufficient to support the exercise of personal jurisdiction."); see also Charas v. Sand Tech. Sys. Int'l, Inc., 1992 WL 296406, at *4 (S.D.N.Y. Oct.7, 1992) (no personal jurisdiction over former outside director "charged with failing to monitor [corporation's] affairs and thereby permitting the fraudulent activities to continue").
Since this Court finds that it lacks personal jurisdiction over the moving defendants pursuant to New York's long-arm statute, it will not address the issue of whether the exercise of personal jurisdiction would offend due process. See, e.g., Jonas v. Estate of Leven, 116 F. Supp. 3d 314, 334 (S.D.N.Y. 2015); Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997); Mangia Media Inc., 846 F. Supp. 2d at 323-24.
The Court notes that to subject Defendants, in their individual capacity, to personal jurisdiction in New York based upon a single contract signed in their official capacity, none of whom happen to live in New York, would not - as presently alleged - "comport with traditional notions of fair play and substantial justice," and therefore fails to satisfy the Due Process Clause. Int'l Shoe, 326 U.S. at 316.
B. The Amended Complaint Fails to Allege Facts Sufficient for the Court's Exercise of Personal Jurisdiction over Defendant M. Barch
In moving to dismiss, Defendant M. Barch (proceeding pro se) asserts that because he "has no contact with New York for purposes of this lawsuit," (Def. M. Barch's Mem. at 3, ECF No. 60), and was "not a party to the contract with [P]laintiff," (id. at 7), Plaintiff cannot "support the exercise of jurisdiction over him in this forum" (id.).
Plaintiff asserts the same naked, conclusory, and formulaic allegations against M. Barch: he undercapitalized Pharmagen, ignored corporate formalities, and dominated its affairs. (Am. Compl. ¶¶ 57-63, 65-68). Contrary to Plaintiff's contentions (Pl.'s Opp'n to M. Barch at 1, 22, ECF No. 68), the fact that Defendant M. Barch was the Chief Executive Officer "at all relevant times" does not affect the analysis or the result.
As noted above, there is no basis for Section 301 jurisdiction where a foreign defendant who does not systematically and continuously do business in New York, and Plaintiff does not argue otherwise. (See supra at 13, finding that an individual defendant may be subject to specific personal jurisdiction, but not general jurisdiction, based on his actions in his corporate capacity.) Similarly, there are no allegations to substantiate Plaintiff's contention that the investments were to be effectuated in New York nor are there allegations to satisfy any of the Sunward factors.
First, Plaintiff fails to allege even a single fact in support of M. Barch's involvement in the transaction, save for a bare allegation that he was CEO of Pharmagen. (Am. Compl. ¶¶ 24-25, 57-58.) Second, while it seems likely that M. Barch was the authorized signatory to the Agreements - the initials "MB" appears at the bottom of all the page of the SPA - this alone is also an insufficient basis for exercising Section 302(a)(1) jurisdiction over a corporate officer. (Id.) See, e.g., Nelson A. Taylor Co., Inc. v. Technology Dynamics Group Inc., 1997 WL 176325, *5 (N.D.N.Y. Apr.7, 1997) (personal jurisdiction imputed when defendants were alleged to have negotiations and signed the agreements in dispute, personally controlled all transactions, and authored virtually all correspondence). Assuming that Defendant M. Barch did sign the Agreements, Plaintiff has not alleged if and where the two met, where the Agreements were signed, or even how frequently they spoke. It is reasonable to assume that Plaintiff would have personal knowledge of these facts not requiring discovery as one of the two authorized signatories to the Agreements. Moreover, Plaintiff fails to allege facts sufficient to establish that Defendant M. Barch derived substantial revenue from interstate or international commerce. See SunLight Gen. Capital, 114 A.D.3d at 522, 981 N.Y.S.2d 390 (no personal jurisdiction pursuant to section 302(a)(3)(ii) "in the absence of evidence that these defendants 'derive substantial revenue from interstate or international commerce' "); Mangia Media Inc. v. Univ. Pipeline, Inc., 846 F.Supp.2d 319, 323 (E.D.N.Y. 2012).
The only allegations specific to M. Barch include: (1) taking personal trips using Pharmagen's funds and (2) using Pharmagen's monies for personal use. (Am. Compl. ¶ 74.) These additional facts - while certainly giving the appearance of misconduct and using the company as an alter ego - do not alter this Court's conclusion that it lacks personal jurisdiction over M. Barch. Plaintiff has not alleged any additional facts relevant to acts committed within New York, whether in the course of transacting business or committing a tortious act.
According to Complaint, M. Barch used corporate funds "to start a medical marijuana dispensary business in Maryland, whose profits would inure to M. Barch's benefit personally, with no benefits whatsoever doing to ... Pharmagen another expense ... Pharmagen ... could not affort that M. Barch was unauthorized to incur." (Compl. ¶ 74).
Under these fact, the exercise of personal jurisdiction over Defendant M. Barch under CPLR § 302 is not supported. The Court therefore grants Defendant M. Barch's motion to dismiss.
C. The Amended Complaint Fails to Allege Facts Sufficient for the Court's Exercise of Personal Jurisdiction over Defendant J. Barch
In moving to dismiss pursuant to 12(b)(2) and 12(b)(6), Defendant J. Barch argues (1) he was never a director or officer or Pharmagen; rather only an employee, and (2) lacks any contact with New York. (Def. J. Barch's Mem. at 2, Ex. 1 Aff. of Justin Barch, ECF Nos. 35 & 63.) In opposition, Plaintiff argues that Defendant J. Barch's submitted an affidavit that "is noticeably devoid of any allegation that Defendant J. Barch does not have minimum contacts with New York and/or derive income from business in New York." (Pl.'s Opp'n to J. Barch at 21.) But Plaintiff mistakenly shifts the burden of proving minimum contacts or transacting business. It is the plaintiff, and not the defendant, who must make a prima facie showing of personal jurisdiction over the defendant. See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990) ("Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, see Fed.R.Civ.P. 11, legally sufficient allegations of jurisdiction.").
Instead of pleading legally sufficient allegations, Plaintiff asserts the same jurisdiction by proxy theory against J. Barch. In Plaintiff's view, he does not need to plead any facts regarding defendants' contacts with New York because "Defendant Officers are individually, jointly and severally liable for all the [company's] wrongdoing against, and liability to [him]." (Compl. ¶ 76.) In fact, Plaintiff's memoranda includes the same stock footnote reminding the Court to substitute individual defendants into the conclusory allegations. It specifically states:
Complaint states that "J. Barch, upon information and belief, had knowledge of Clark's improper use of [company] funds ... during the period from [January 2014 - February 2014], and made no efforts to put a stop to such activities." (Compl. ¶ 75).
"The Verified Amended Complaint refers to 'Defendant Officers' collectively, a representative term of all Defendants, which includes Defendant J. Barch. For the purposes of this Opposition, J. Barch is the only relevant Defendant." (Pl.'s Opp'n to J. Barch at 10 n. 5.)Lumping all the "defendants" together for purposes of alleging connections to New York is, however, patently insufficient. See, e.g., Cenage Learning, Inc. v. Buckeye Books, 531 F. Supp. 2d 596, 599 (S.D.N.Y. 2008) (finding that when defendants are "separate entities and are presumptively entitled to have independent existence," plaintiff must establish a basis for subjecting each of them, individually to the jurisdiction of the court). Therefore, the Court finds exercise of personal jurisdiction over Defendant J. Barch under CPLR § 302 is not supported, and grants Defendant J. Barch's motion to dismiss.
D. The Amended Complaint Fails to Name a Necessary Party
Defendant Clarke's motion differs from that of the other defendant in that it does not seek to dismiss the suit on 12(b)(2). Rather he seeks to dismiss the Complaint pursuant to Rule 8, Rule 9, and Rule 12(b)(6) of the Federal Rules of Civil Procedure. To start, "[i]t would have been advisable for defendant['s] counsel to be aware of any jurisdictional arguments their clients had before making an incomplete motion to dismiss. [The Court] would suggest they be more careful the next time." Cenage Learning, Inc. v. Buckeye Books, 531 F. Supp. 2d 596, 600 (S.D.N.Y. 2008). For purposes of deciding sua sponte whether to dismiss an action for lack of personal jurisdiction, courts in this circuit draw an "important distinction ... between appearing and non-appearing parties." Sinoying Logistics Pte Ltd. v. Yi Da Xin Trading Grp., 619 F.3d 207, 213 (2d Cir. 2010). In cases involving the former, "a district court should not raise personal jurisdiction sua sponte." Id.
Defendants Wolpow, Rowley, Relac, Skibted, M. Barch, and J. Barch move to dismiss pursuant to Fed. R. Civ. P. 12(b)(2) and 12(b)(6). (ECF Nos. 43, 59, & 63.)
Plaintiff asserts that "[t]his Court can afford complete relief among the existing parties, without the joinder of ... Pharmagen." (Am. Compl. ¶ 35.) Not so. Defendant Clarke correctly notes that "each and every claim is premised on the theory that the Plaintiff is entitled to pierce the corporate veil of [Pharmagen] and hold [individual defendants] liable for the acts of 'Non-Party Pharmagen Companies.'" (Def. Clarke's Mem. at 6.) All the alleged misconduct in this case arises from misrepresentations made concerning the Agreements executed, and subsequently breached, by Pharmagen or Bryce Labs. It follows then that there can be no individual liability for defendants except on an alter ego or veil piercing theory. On that theory, the fact that Defendant Clarke moved to dismiss on Rules 8, 9, and 12(b)(6), as opposed to Rule 12(b)(2), does not alter the analysis because the critical question remains: does anything in federal or New York state law preclude this case from proceeding, on veil piercing and alter ego theories of liability, given that the company is not a named party? In other words, the Court must address whether the company is a necessary party to the instant action.
Defendant Clarke also appears to have abandoned his contention that dismissal is required under Federal Rule of Civil Procedure 12(b)(7) for nonjoinder of necessary parties. (See generally ECF No. 6.) However, a court must sua sponte order a necessary party joined when none of the parties in the case have sued the indispensable party. Fed. R. Civ. P. 19(a)(2). To determine whether a party is indispensable to an action, courts must first analyze "whether an absent party belongs in the suit, i.e., whether the party qualifies as a 'necessary' party under Rule 19(a)." Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir. 2000). The Rule states, in relevant part, that a party is necessary when, "in that person's absence, the court cannot afford complete relief among existing parties." Fed. R. Civ. P. 19(a)(1)(A). "If a party does not qualify as necessary under Rule 19(a), then the court need not decide whether its absence warrants dismissal under Rule 19(b)," which addresses when an action should be dismissed because joinder of the necessary party would destroy subject matter jurisdiction or otherwise be infeasible. Crotona 1967 Corp. v. Vidu Bros. Corp., 925 F. Supp. 2d 298, 306 (E.D.N.Y. 2013) (citing Assoc. Dry Goods Corp. v. Towers Fin. Corp., 920 F.2d 1121, 1123 (2d Cir. 1990)). In the instant case, Plaintiff is seeking to hold individual directors and officers of a corporation liable under an alter ego theory, but has not joined the corporation in the lawsuit. The Court determines that the action cannot proceed unless the corporation is joined as a party.
In a letter dated February 12, 2016, Defendant Clarke requested a pre-motion conference "to discuss and schedule Defendant Clarke's motion to dismiss pursuant to 12(b)(6) and 12(b)(7)." (ECF No. 6.)
As a threshold issue, Plaintiff alleges that the Pharmagen, and not the individual directors, is the signatory to the Agreements at issue. (Am. Compl. ¶ 43.) Notwithstanding Plaintiff's contention to the contrary, "[he] fail[s] to recognize that under New York law, shell companies are necessary parties in an action to pierce the corporate veil." Miramax Film Corp. v. Abraham, No. 01-CV-5202 (GBD), 2003 WL 22832384, at *9 (S.D.N.Y. Nov. 25, 2003) (citing Stewart Tenant Corp. v. Square Industries, Inc., 703 N.Y.S.2d 453, 454 (N.Y. App. Div. 2000). Even if Plaintiff is correct that Pharmagen is now defunct, the concept of piercing the corporate veil is a limitation on the accepted principles that a corporation exists independently of its owners, as a separate legal entity, that the owners are normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners [citations omitted]. State v. Easton, 169 Misc. 2d 282, 287-88, 647 N.Y.S.2d 904, 908 (Sup. Ct. 1995). Because the concept of piercing the corporate veil assumes that the corporation itself is liable for the obligation sought to be imposed, an attempt of a third party to pierce the corporate veil does not constitute a cause of action independent of that against the corporation; rather it is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners. See United States v. Evseroff, No. 00-CV-06029 (KAM), 2012 WL 1514860, at *13 (E.D.N.Y. Apr. 30, 2012), aff'd, 528 F. App'x 75 (2d Cir. 2013) ("The alter ego doctrine arose from the law of corporations and allows a creditor to disregard the corporate form (also known as 'piercing the corporate veil') either by using an owner's assets to satisfy a corporation's debt or by using the corporation's assets to satisfy the individual's debt. Therefore, to the extent that Plaintiff is asking the Court to impose corporate obligation on individual officers and directors, it must also join the corporation.
Under Rule 12(b) (7), courts are required to dismiss an action for failure to join a necessary party under Rule 19. See Fed. R. Civ. P. 12(b)(7); see also Federal Ins. Co. v. SafeNet, Inc., 758 F.Supp.2d 251, 257 (S.D.N.Y. 2010). Courts considering a Rule 12(b)(7) motion look to Rule 19(a) to determine whether an absent party qualifies as a "necessary" party under Rule 19(a). See Federal Ins. Co., 758 F.Supp.2d at 257 (citing Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir. 2000); LBA Intern. Ltd. v. C.E. Consulting LLC, 2010 WL 305355 *3 (S.D.N.Y. 2010).
There are three components of Rule 19(a) that courts assess to determine whether an absent party is required. See Fed. R. Civ. P. 19(a)(1); C.D.S., Inc. v. Zetler, No. 16 CIV. 3199 (VM), 2016 WL 4257745, at *7 (S.D.N.Y. Aug. 3, 2016), reconsideration denied sub nom. C.D.S., Inc. v. Bradley Zetler, CDS, LLC, No. 16 CIV. 3199 (VM), 2016 WL 5867450 (S.D.N.Y. Sept. 30, 2016) (quoting Fed. R. Civ. P. 19(a) (1)); see also Federal Ins. Co., 758 F.Supp.2d at 257. The first component asks whether the court can afford complete relief in the absence of the non-party. See Fed. R. Civ. P. 19(a)(1)(A); Federal Ins. Co., 758 F.Supp.2d at 257 (citing MasterCard Int'l, Inc. v. Visa Int'l Serv. Ass'n, Inc., 471 F.3d 377, 385 (2d Cir. 2006)). The second component focuses on whether the non-party's absence will impair or impede its ability to protect its interests. See Fed. R. Civ. P. 19(a)(1)(B)(i); Federal Ins. Co., 758 F.Supp.2d at 257-58 (citing MasterCard, 471 F.3d 377, 386-87). The third component asks whether the existing parties would be subject to "double, multiple, or otherwise inconsistent obligations." See Fed. R. Civ. P. 19 (a)(1)(B)(ii). If any of the three components are satisfied, the absentee party constitutes a required party. See Federal Ins. Co., 758 F.Supp.2d at 257.
If a party held to be necessary has not been joined, the court "must" order that the person be made a party. See Fed. R. Civ. P. 19(a)(2); see also Viacom, 212 F.3d at 725. In the event that joinder is not feasible, the court proceeds to consider "whether "in equity and good conscience," the action should proceed with the existing parties, or be dismissed. See Fed. R. Civ. P. 19(b).
First, it is unclear what measures could be taken to lessen or avoid the potential prejudice to Pharmagen. The Court may pursue several approaches in an effort to minimize prejudice to this absent party, including awarding monetary damages in lieu of injunctive or declaratory relief, entering a judgment conditioned on plaintiff taking certain actions, or requiring that sufficient funds be set aside to pay other claimants. None of these approaches, however, is satisfactory in the present matter because the effect of a judgment herein on the absent corporation is completely unforeseeable and therefore impossible to mitigate. Because the Court cannot anticipate the impact any judgment in this case might have on Pharmagen, it cannot fashion appropriate precautions to mitigate the potential prejudice to Pharmagen.
Second, the Court finds the individual defendants cannot adequately protect the corporation's interest, as they may ignore questions of liability and instead focus their defense on showing that they are not the corporation's alter ego.
Finally, the failure to join the corporation would subject it to a significant risk of incurring double, multiple, or otherwise inconsistent obligations because the corporation might be found liable in the instant action, as an alter ego, but not liable in a separate action solely against the corporation. As noted above, Pharmagen faces a significant risk of prejudice if this action proceeds without joining it as a party. A finding of liability in this action could result in multiple or inconsistent obligation for Pharmagen and defendants cannot adequately protect Pharmagen's interest in this action.
Accordingly, Pharmagen appears to be a "necessary party" for purposes of Rule 19. In light of the fact that this Court finds that Rule 19 requires dismissal, the Court need not reach issue preclusion raised by Defendant Clarke, and expresses no opinion as to the merits thereof. Town of Huntington v. Am. Mfrs. Mut. Ins. Co., 267 F.R.D. 449, 453 (E.D.N.Y. 2010). Plaintiff is not precluded from recommencing the action in the proper manner naming all necessary parties. Hitchcock v. Boyack, 256 A.D.2d 842, 844, 681 N.Y.S.2d 659, 661 (1998).
CONCLUSION
In accordance with the foregoing, Defendants Wolpow, Rowley, Relac, and Skibsted's motion to dismiss is GRANTED, Defendant M, Barch's motion to dismiss is GRANTED, and Defendant J. Batch's motion to dismiss is GRANTED. Furthermore, the Court concludes that Plaintiff has failed to name a necessary party as a matter of law. As such, Defendant Clarke's motion to dismiss is GRANTED. Plaintiff's Amended Complaint is dismissed without prejudice.
The Clerk of Court is respectfully requested to terminate the motions at ECF Nos. 43, 51, 59, and 63, and to terminate the case. Dated: March 31, 2017
White Plains, New York
SO ORDERED:
/s/_________
NELSON S. ROMÁN